Experts back lifting restrictions on NEST pensions as government review comes to an end

Experts are supporting the lifting of restrictions on the government-backed pension scheme charged with providing a low-cost option for automatic-enrolment.

Monday sees the end of a government review into whether regulations limiting the remit of the National Employment Savings Trust (NEST) should be lifted.

Currently, there is a yearly £4,400 cap on contributions into a NEST pension, while members are not allowed to transfer existing pensions in and out of the scheme in the event a worker change job.

Pensions minister Steve Webb is keen to lift the restrictions to engender a 'pot follows member' culture, but says he needs evidence that the restrictions harm consumers before the Government can make the necessary changes.

Evidence needed: Steve Webb MP says the Government needs evidence that capping contributions and restricting transfers is detrimental to the consumer.

Pension experts at Capita have responded broadly in favour of lifting the restrictions.

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'A review is timetabled for 2017 and the restrictions would almost certainly be lifted then anyway.

'For simplicity's sake and to support NEST's public service obligations, this should happen sooner rather than later.'

There have been concerns from some sectors of the industry that lifting the restrictions on NEST, which has an annual scheme charge of 0.3 per cent with a 1.8 per cent charge on contributions, would allow NEST to compete for more profitable business.

This has been rejected previously by NEST chief executive Tim Jones, who said those targeted by NEST are in a different market to those who attract private pension providers.

Different market: Chief executive Tim Jones said NEST targets different types of customers than those taken on by private pension providers.

A number of companies are now taking a 'two-tiered' approach to their auto-enrolment solutions, so that those on lower-wages are placed on the lower-cost scheme, with others going onto company alternatives.

Mr Hames added: 'NEST has been designed with moderate earners in mind.

'The market has evolved and a number of
employers are considering a two-tier approach to auto-enrolment as they
have an employee segment that would be well served by NEST.